Association of Accounting

Technicians (AAT) response

to HMRC’s consultation on
Tackling Promoters of Tax
Avoidance

AAT Chief Executive: Jane Scott Paul OBE. AAT is sponsored by CIPFA, ICAEW, CIMA and ICAS. A company limited by guarantee (No.
1518983) and registered as a charity (No. 1050724) Registered in England and Wales,
Registered office: 140 Aldersgate Street, London, EC1A 4HY
1. Introduction

1.1. In 2012, after 8 years of operation, the Oxford University Centre for Business Taxation was
commissioned by the National Audit Office to examine the effectiveness of DOTAS and found,
“…some anecdotal evidence and some limited statistical evidence, to support the view that the
DOTAS regime is having a measure of success,” but disputed HMRC’s claims that it had been highly
successful 1.

1.2. More recently there have been one or two high profile success stories such as the Hyrax Resourcing
case in 2019. 2

1.3. However, it is clear that DOTAS and POTAS could be improved given the Treasury confirmed as
much in Budget 2020 by setting out plans to make changes that will help HMRC obtain the
information needed to bring a scheme into the DOTAS regime and empower HMRC to act faster
where avoidance schemes are being promoted; to make further technical amendments to the
POTAS regime, as well as promising additional changes to the General Anti-Abuse Rule (GAAR) so
it can be used as intended to tackle avoidance using partnership structures 3.

2. Executive summary

2.1. Association of Accounting Technicians (AAT) wholeheartedly backs Government proposals

to tackle promoters of tax avoidance.

2.2. It was reassuring to note HMRC’s statement that, “Promoters of tax avoidance schemes are
rarely members of professional bodies.
A simpler and more effective way of dealing with this problem might therefore be for Government to
require anyone offering paid for tax/accountancy advice to be a member of a relevant professional
body, as set out in some detail in AAT’s August 2020 submission to HMRC 4.

2.3. AAT supports the proposed strengthening of HMRC’s powers to name promoters and
enablers and believes the new powers are equally applicable to DASVOIT as to DOTAS.

2.4. The conditions for issuing earlier stop notices achieve a sensible balance between ensuring
appropriate safeguards are in place.
They also help to ensure HMRC is able to promptly tackle schemes that are destined to fail for the
benefit of taxpayers.

2.5. AAT welcomes the proposals to deal with promoters who hide behind other business
structures/entities.
However, AAT also cautions that manipulative individuals keen to evade justice will likely still find
further means of frustrating HMRC here, particularly around the subjective notion of control and
influence (see below at 3.28).

2.6. AAT strongly warns HMRC against the idea of applying a new penalty regime retrospectively
from 2017.
This is likely to undermine HMRC’s credibility and authority and should therefore be avoided.

2.7. AAT supports HMRC proposals to make it clearer as to how the GAAR procedure is applied to
partnerships and to ensure that GAAR works effectively and as originally intended in respect
of partnerships.

1
Oxford University Centre for Business Taxation, December 2012:
http://eureka.sbs.ox.ac.uk/4428/3/DOTAS_3_12_12.pdf
2
HMRC news release (Hyrax Resourcing Ltd) March 2019:
https://www.gov.uk/government/news/hmrc-wins-40-million-battle-against-tax-avoidance-promoters
3
Budget 2020, 2.256
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/871799/Budget_2020_Web_
Accessible_Complete.pdf
4 AAT submission to the HMRC call for evidence on raising standards in the tax advice market, August 2020:
https://www.aat.org.uk/about-aat/aat-policy-work
2
3. AAT response to the consultation document

Tackling promoters who do not disclose avoidance schemes to HMRC

Would 30 days give a reasonable amount of time to furnish HMRC with information on the
schemes that the promoters or enablers have been promoting or enabling?

3.1. Yes, 30 days is more than sufficient time for any firm to be able to respond in full about its own
activities in relation to the promotion or enabling of such schemes.

Would the proposed approach prevent persons from obstructing enquiries by claiming
not to be a promoter, or in other ways such as by restructuring or moving offshore? If not,
why not?

3.2. Those most determined to be obstructive will still likely find a way.

3.3. Although striking a company off from Companies House takes at least three months, there is
nothing to stop a company from going into liquidation. If more than 90% of shareholders agree to
short notice, liquidation can happen within as little as seven days, the minimum statutory notice
for creditors.

3.4. It is highly unlikely that HMRC would be able to ask for full details within 7 days so it will have to
accept that in a small number of circumstances it may not be successful in preventing such
activities.

How useful would information on the scheme be, without the name of the promoter, to
help potential purchasers of the scheme understand the risks of using it? How might this
information be published in order to be most helpful?

3.5. Publication of such information might be of some help in warning the public that HMRC believes
a scheme is a tax avoidance scheme. However, without the name of the promoter, unscrupulous
individuals will simply claim that their scheme is “different” and will likely continue to attract
customers. If possible, it would make more sense to have the power to publish the name of the
promoter or enabler at this initial notice stage. Given anyone HMRC intends to name will have
the opportunity to make representations to HMRC before being named, in keeping with other
existing powers to name taxpayers by HMRC, there seems little reason to delay.

Are the grounds of appeal against the issue of a new SRN the right ones? & Are there any
other grounds that should be considered?

3.6. The grounds of appeal appear reasonable. Other grounds are not required because the two
available are sufficiently broad to cover any foreseeable abuse or error i.e. “reasonable grounds
for believing” that the arrangements were notifiable or not meeting the conditions for issuing an
SRN under this procedure.

Would naming those in the supply chains for promoting tax avoidance schemes help
make taxpayers aware that they risk falling into a scheme that HMRC suspects does not
work?

3.7. This is likely to help in some circumstances but naming those involved in the supply chain will
inevitably increase the likelihood of wrongly naming individuals who have little or no knowledge of
the evasion and so such powers must be used sparingly, at least until such time as HMRC can
demonstrate that doing this has a consistently positive effect.

3
 To what extent do the safeguards proposed achieve a balance between ensuring that the
new power would be used appropriately and ensuring that the new powers are not
sidestepped by promoters and others, allowing them to continue to market their scheme
to taxpayers?

3.8. AAT believes that the proposed powers do achieve the right balance and acknowledges that
finding such a balance is a real challenge. Anticipating both the likely reaction of promoters and
enablers, avoiding any unintended negative consequences and making sure those responsible
are held to account requires competing interests to be handled sensitively yet robustly.

Do you agree that the proposed new rules, as described above, should also apply to
DASVOIT?

3.9. AAT is not aware of any reason why these new powers should not apply to DASVOIT. Tax
avoidance must be treated with the same robust, effective approach irrespective of the type of tax
concerned.

Are there any modifications to the proposals for the new power in DOTAS that would be
needed in order for it to work appropriately in the DASVOIT regime?

3.10. AAT is not aware of any modifications that are required to work in the DASVOIT regime that
would not work in the DOTAS regime.

Dealing with promoters who sell schemes that do not work

Do the conditions for issuing earlier stop notices achieve a sensible balance between
ensuring appropriate safeguards are in place, whilst ensuring that HMRC is able to
promptly tackle schemes that are destined to fail for the benefit of taxpayers? If not, how
could they be better targeted to achieve this balance?

3.11. The current system, as HMRC has ably detailed in the consultation document, is not fit for
purpose given the relative ease with which promoters can frustrate the process.

3.12. As a result, AAT strongly supports changes that will provide that a stop notice can be issued for
new schemes providing that HMRC has reason to suspect that (i) a person is a promoter, (ii) that
the promoter is promoting arrangements where at least one of the benefits is a tax advantage,
and (iii) that HMRC has reasonable grounds to suspect do not deliver the tax advantage
promised.

3.13. These three conditions are perfectly reasonable and cover the key issues at hand, no other
conditions should be required.

How can HMRC best ensure that the internal review and appeals process work
appropriately for recipients of stop notices?

3.14. Continuation of the existing safeguards, the availability of internal reviews and the fact if anyone
is dissatisfied with the outcome of such a review, they can appeal to a tribunal should be
sufficient to ensure a robust appeals process.

3.15. Annual publication of such reviews and any tribunal appeals on the same subject might also help
to further concentrate the minds of some within HMRC to ensure reviews operate effectively.

To what extent would publishing stop notices help inform taxpayers of the risks of
entering into that scheme?

3.16. Publication would be very helpful because it would provide the public with reassurance and
information that they otherwise may not be aware of. This means they can make a much better
informed decision about whether or not to participate in the scheme.

4
 3.17. However, even the most well informed member of the public is unlikely to be regularly visiting the
HMRC /gov.uk web site and if they are seeking out such information then they probably already
have suspicions that the scheme they are considering using is of dubious credibility and as such
are unlikely to proceed.

3.18. Members of the public who are not well informed clearly need greater protection and that is why
stopping such activities at the earliest possible stage is always going to be more effective than
simply warning the public about concerns.

If the notice is appealed (and not subsequently withdrawn) – when would publishing of the
details of the promoter best provide taxpayers with the information they need? Should
this be after the First-tier Tribunal has reached a decision or later?

3.19. The information could still be published even if appealed. Providing it is made clear that the
decision is being appealed then HMRC would be doing nothing more than providing factual
information.

3.20. Members of the public are likely to take a very dim view of no information being made available
simply because an appeal has been lodged. This is not how the courts operate and there is no
reason why HMRC should behave any differently.

Would the proposal be a suitable way to achieve the government’s objective (as set out in
para 4.9)? Are there any modifications that would help deliver that objective more
effectively?

3.21. AAT, like the government and most in the profession, is keen to prevent tax avoidance schemes.

3.22. AAT understands that prevention at a much earlier stage (as soon as HMRC has a reasonable
suspicion that there is a scheme being sold with the sole or main purpose of achieving a tax
advantage, and that it does not work) is preferable and believes that the measures set out above
should help achieve this.

3.23. It may be outside the scope of this consultation, but AAT also has some concerns about the
advertising of tax avoidance schemes.

3.24. Although advertisers are required to ensure that their marketing communications, “… are legal,
comply with the law and do not incite anyone to break it” meaning any advertising for tax evasion
is illegal and will break advertising rules as well as the law. This has not been sufficient to stop
many promoters from advertising, especially online.

3.25. AAT notes that the Advertising Standards Authority has taken some steps in this area in recent
years – Knight Wolffe Ltd., 5 Williams Gordon Ltd 6 and CDP Tax & Wealth Ltd. 7 – but that much
more could be done.

5
ASA Ruling on Knight Wolffe Ltd, September 2017:
https://www.asa.org.uk/rulings/knight-wolffe-ltd-a17-384821.html
6
ASA Ruling on Williams Gordon Ltd, February 2018:
https://www.asa.org.uk/rulings/williams-gordon-ltd-a17-394324.html
7
ASA Ruling on CDP Tax & Wealth Ltd., March 2018:
https://www.asa.org.uk/rulings/cdp-tax-and-wealth-ltd-a17-395697.html
5
Avoidance Schemes Regime

Are the proposals to deal with promoters who hide behind other business
structures/entities or individuals appropriately targeted? To what extent would the
existing procedural safeguards that apply to this regime continue to provide an
appropriate amount of internal scrutiny to any future use of these powers if changed
under these proposals (paragraphs 5.7-5.9)?

3.26. AAT believes that the proposed changes would enable HMRC to more effectively challenge
persons who use separate entities to avoid their legal obligations although noting the example
already given in 3.2-3.4 above, it must also be acknowledged that in a small number of cases this
may prove almost impossible to address.

3.27. AAT agrees that the opportunity to comment on the proposed terms of the conduct notice
continue to provide an appropriate safeguard.

3.28. Widening the existing legislation to include individuals who control, or have significant influence is
a welcome reform but there must be some concern that someone behaving in such a
manipulative manner is likely to use the defence that although working for the new entity in a
promotional or enabling way, they will likely claim that they exert no real influence and undertake
a junior position. HMRC must be alive to this defence.

Do the proposed changes achieve an appropriate balance between providing a clear

window for those in receipt of a conduct notice and the need to ensure that promoters
cannot continue to manipulate the rules to prevent HMRC taking action against them?

3.29. These proposals appear to strike the right balance.

To what extent would the existing procedural safeguards that apply to this regime
continue to provide an appropriate amount of internal scrutiny to any future use of these
powers if changed under these proposals (paragraphs 5.11-5.13)?

3.30. As above, the existing procedural safeguards should suffice although a commitment to
transparency, perhaps through annual publication of results, would assist in providing
reassurance that these powers are not being abused.

Are the proposed updates to the POTAS threshold conditions to include further DOTAS
failures proportionate?

3.31. Yes. AAT believes that the proposed updates are proportionate.

Penalties for those who enable tax avoidance schemes that fail

Do you agree that this change would enable HMRC to engage with potential enablers and
get the required information from them to determine whether an enablers penalty is
appropriate?

3.32. This change would certainly better reflect the original intention of the legislation and with that in
mind AAT supports the proposals.

3.33. The proposed changes would also enable HMRC to assess penalties at an earlier point, as soon
as a multi-user scheme was shown not to work rather than having to wait for more than 50% of
the cases in which a taxpayer has used the scheme to have to have been defeated as at present.

6
 Do you agree that penalties should be raised in all cases once there is a final judicial
ruling confirming that the scheme is abusive avoidance?

3.34. AAT very much agrees that penalties should apply whenever a scheme is deemed abusive.
However, whilst no obvious exception appears likely, HMRC should retain discretion not to apply
penalties in exceptional circumstances.

What factors should the government consider in determining whether it would be

appropriate to apply these measures from the introduction of the penalty regime in 2017?

3.35. AAT has great sympathy with HMRC’s desire to apply these measures retrospectively from the
introduction of the penalty regime in 2017, not least because the type of behaviour that it is
seeking to penalise is abhorrent and wholly without justification and frustrates the original
intention of the legislation.

3.36. However, given the strength of criticism that HMRC has received in the past for seeking to take
retrospective action, no matter how well intentioned (for example in relation to the Contractor
Loan Charge) it must also take into consideration the damage to its credibility and authority that
such a step would inevitably bring, to say nothing of the likely time, costs and resources that any
legal challenge would bring.

3.37. On that basis, AAT suggests that HMRC abandon any plans for retrospective action and instead
focus on the new penalty regime taking effect only after Royal Assent for this legislation has been
given in the usual way.

Maintaining the General Anti Abuse Rule (GAAR)

Do the proposed changes to the legislation make it sufficiently clear as to how the GAAR
would apply to partnerships?

3.38. As the consultation document highlights, the current GAAR legislation makes no specific mention
of partnerships or any particular steps needed to impose the regime on partners or partnerships
who enter into abusive arrangements.

3.39. As a result, AAT supports HMRC proposals to make it clearer as to how the GAAR procedure is
applied to partnerships and to ensure that GAAR works effectively and as originally intended in
respect of partnerships.

3.40. At present it is clear that ambiguities in the legislation could be utilised by partners to frustrate
HMRC’s attempts to tackle avoidance and AAT agrees that this is not acceptable.

To what extent would the existing procedural safeguards that apply to this regime
continue to provide an appropriate amount of internal scrutiny to any future use of these
powers if changed under these proposals?

3.41. The GAAR framework provides for numerous safeguards such as rights to make representations,
appeal rights and the role of the independent Advisory Panel. The representative partner has all
of these rights on behalf of the partnership, so appears well catered for.

3.42. As these rights and safeguards do not appear to change in any way as a result of the proposed
changes for partnerships, AAT believes the existing regime of safeguards remains satisfactory
and requires no additions.

7
4. About AAT

4.1. AAT is a professional accountancy body with approximately 50,000 full and fellow members and
over 80,000 student and affiliate members worldwide. Of the full and fellow members, there are
more than 4,250 licensed accountants who provide accountancy and taxation services to over
400,000 British businesses.

4.2. AAT is a registered charity whose objectives are to advance public education and promote the
study of the practice, theory and techniques of accountancy and the prevention of crime and
promotion of the sound administration of the law.

5. Further information

5.1. If you have any queries, require any further information or would like to discuss any of the above
points in more detail, please contact Phil Hall, AAT Head of Public Affairs & Public Policy:

5.2. E-mail: phil.hall@aat.org.uk Telephone: 07392 310264 Twitter: @PhilHallAAT

5.3. Association of Accounting Technicians, 140 Aldersgate Street, London, EC1A 4HY

Tuesday 15 September 2020